MNI: FOMC Nods to Inflation Progress; On Track for June Hike>

--Deletes 'Monitoring Infl Developments Closely' 

--Infl Expected To Run Near Symmetric 2% Target In Medium Term

--Fed Funds Rate Target Range Stays at 1.50%-1.75%

By Sara Haire

     WASHINGTON (MNI) - The Federal Reserve on Wednesday acknowledged 

that inflation is running near its 2% objective, reinforcing its case 

for a gradual removal of monetary stimulus and strengthening 

expectations that it will raise interest rates again next month. 

     At the conclusion of its May meeting, the Federal Open Market 

Committee unanimously decided to keep its target range for the fed funds 

rate at 1.50% to 1.75%, as widely expected. It made a number of tweaks 

to its post-meeting policy statement, especially the references to 

inflation. 

     In the statement, the FOMC acknowledged that both headline and core 

inflation have "moved close to 2%" and said that inflation on a 12-month 

basis is "expected to run near the Committee's symmetric 2% objective 

over the medium term," fully embracing a string of recent inflation 

reports pointing to rising price levels. 

     Importantly, no longer does the FOMC state that it is "monitoring 

inflation developments closely," a phrase that has been part of its 

policy statement for years after the financial crisis. Instead, 

officials stated simply that "risks to the economic outlook appear 

roughly balanced." In March, the FOMC had said "near-term risks" 

appeared roughly balanced. 

--POLICY REMAINS ACCOMMODATIVE   

     The Committee reiterated their expectations that "economic 

conditions will evolve in a manner that will warrant further gradual 

increases in the federal funds rate."  

     "The stance of monetary policy remains accommodative, thereby 

supporting strong labor market conditions and a sustained return to 2 

percent inflation," it said. 

     Earlier on Wednesday, the CME Group's 30-Day fed fund futures 

prices showed only 6% of the market expecting a hike at this meeting. By 

contrast, traders placed the chances of a rate hike in June at a near 

certainty, with one in ten even anticipating a 50 basis point hike. This 

statement could excite the markets further for the next meeting. 

--OUTLOOK LITTLE CHANGED

     Aside from sounding definitively more upbeat on the inflation 

outlook, policymakers signaled their view on economic activity was 

little changed since March, only adding that business fixed investment 

"continued to grow strongly," an upgrade from their previous statement 

that it had moderated from the fourth quarter. 

     The statement retained the FOMC's assessment that "economic 

activity has been rising at a moderate rate." First quarter GDP rose 

2.3%, a slowdown from the fourth quarter's 2.9% pace as consumption 

lagged. But growth was still faster than the 1.8% expected by Fed 

officials to prevail in the long run. 

     Job growth remained strong "on average," the FOMC said, a reference 

to the sharp movements in the February and March payrolls reports. 

Analysts expect another 185,000 gain in new payrolls in April, 

offsetting the soft 103,000 gain seen in March. The unemployment rate 

is expected to tick down a tenth to 4.0%, inching closer to the 

FOMC's median expectation of 3.8% by December. 

--MNI Washington Bureau; email: sara.haire@marketnews.com 

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